1. ECN 200: Introduction to Economics Macroeconomic Aggregates
Nusrat Jahan
Lecture-7
Macroeconomic Aggregates

2. Measuring Economic Success
Economic success is measured by looking at 3 key variables-
1. Gross Domestic Product (GDP)
2. Unemployment and
3. Inflation

3. Gross Domestic Product (GDP)
GDP is the measure of the market value of all final goods and services produced in a country in a year.
Nominal GDP: Nominal GDP is measured in actual market prices.
Real GDP: Real GDP is measured in constant or invariant prices.
Calculating GDP
Expenditure approach: In this approach all the expenditures done in the economy are added to calculate GDP as Expenditure = Income.
Where, C = Consumption Expenditure
Ig = Gross Investment
G = Government Expenditure
NX = Net Export
Income approach: In this approach all the incomes of all the agents of the economy are added to calculate GDP.
Incomes include- wage, rent, interest, profits and taxes.

4. Consumer Price Index (CPI)
Distinction between GDP and GNP
Consumer Price Index (CPI)
A consumer price index (CPI) measures changes in the price level of a market basket of consumer goods and services purchased by households.
Measuring Inflation with CPI
Inflation is a rise in the general price level.

5. Consumer Basket is 5 Food and 2 Clothing
Year
Food Price
Clothing Price
Food spending
Clothing Spending
Total Spending
CPI (Base 2003)
Inflation
2000 10 20 50 40 90
56.25
2001 12 22 60 44
104
65.00
15.5%
2002 15 25 75
125
78.12
20.18%
2003 30
100
160
100.00
28%
Types of Inflation
Demand Pull Inflation: This type of inflation results due to the increase in Aggregate demand in the economy.
Cost Push Inflation: Increase in cost of production will result in cost push inflation.